Cheque and
Demand Draft – Banking Awareness Notes
Introduction
The cheque is
simply, an instrument, which contains an order to the bank to pay the specified
sum from the drawer’s account to the holder of the instrument. On the other
hand, demand draft is a financial instrument that is payable
on demand.
Banks are integral part
of our life as millions of transactions take place every next minute, in which
the bank is involved in some way or the other, such as depositing cash and
valuables, withdrawing cash at any time, transferring money from one place to
another, payment of bills, booking of tickets, purchase, and sale of products
or services etc. These activities can be performed by ATM, net banking, cheques
and demand drafts and so on.
But what do the two terms
cheque and demand draft means? What is the difference between them? Come let’s
understand the difference between a cheque and demand draft.
Definition of Cheque
The cheque is a
negotiable instrument containing an order to make a certain amount of payment
to the payee and is signed by the drawer. It can be easily transferred through
a mere hand delivery. There are three parties to the cheque- Drawer (maker
of the cheque), Drawee (bank on which the cheque is drawn), Payee (to
whom the amount of the cheque is payable).
Types of Cheque
- Bearer Cheque: The cheque in which the payment
is made to any person who presents the cheque to the
bank.
- Order Cheque: The cheque in which the payment
is made only to the person whose name is specified in the
cheque.
- Crossed Cheque: Crossed cheque means that the two
transverse parallel lines are made on the face of the cheque, to
give a better title to the holder of the cheque. Such a type of cheque can
only be transferred to the payee’s account.
- Uncrossed Cheque: The uncrossed cheque is a kind
of cheque which is made payable at the time of presenting it.
- Stale Cheque: The type of cheque, which is presented
after the specified time of three months is a stale cheque.
Definition of Demand
Draft
Demand draft is a
negotiable instrument issued by a certain bank that directs the other bank or
one of its own branches to pay a certain sum of money to the payee. In the case
of demand draft there are two parties involved in it, one is drawer (bank
or any financial institution), and the other is payee (to whom
the amount is transferred). It is used for transferring money from one place to
another and it cannot be transferred by a mere hand delivery.
Types of Demand Draft
- Sight Demand Draft:
The type of
demand drafts in which the payment is made only after the
presentment of the specific documents at sight.
- Time Demand Draft: The type of demand draft in
which the payment is made only after the specified period.
Key Differences Between
Cheque and Demand Draft
1. Cheque is payable either to order or
bearer whereas Demand Draft is always payable to the order of a certain person.
2. Cheques can be dishonored due to
insufficient balance, whereas dishonor is not possible in case of Demand Draft
due to pre-payment of the amount.
3. Cheques are issued by the customers
of the bank while the bank itself issues the Demand Draft.
4. Cheque book facility is available
only to the account holders of the bank, but Demand Draft facility is available
to both the account holders and non-account holders.
5. The purpose of the cheque is to make
payment in a safe and easy mode while the purpose of the demand draft is to
transfer money from one place to another.
As we have seen from the
above discussion, both of these negotiable instruments are significant in its
own way. To deal with millions of transactions on a daily basis, one can avail
the benefits of a cheque, which is easy and convenient to use and in case the
amount needs to be transferred from one place to the another; demand draft is
the best option to go for.
